A company keeps 20 days of materials inventory on hand to avoid shutdowns due to materials shortages. Carrying costs average $4,000 per day. A competitor keeps 10 days of inventory on hand, and the competitor’s carrying costs average $2,000 per day.
-Refer to the figure.Moulding the materials costs $30,000.What are the value-added costs?
A)$80,000
B)$40,000
C)$30,000
D)$20,000

Question

Quizplus · Accepted Answer

Value-added costs are those costs that are incurred to transform materials into finished goods. In this scenario, the only cost associated with transforming the materials into finished goods is the moulding cost of $30,000. Carrying costs for inventory are considered non-value-added costs because they do not directly contribute to the transformation of materials into finished products.

A Company Keeps 20 Days of Materials Inventory on Hand